There are times when a CDFA’s financial recommendations fly straight in the face of sound financial planning strategies. Since 2008, there have been a few cases where the Divorce Financial Planner has apologized to divorcing spouses, “I know you came to me help you get divorced, but we have to address financial survival first.”
Reviewing the budget
Experience shows that there are monthly expenses such as food, direct housing, transportation, and children’s expenses where families cannot make a sizeable dent in monthly needs. I am not saying that these items should not be scrutinized and revised accordingly; however, if one looks beyond the budget and into the paystub, substantial savings can be produced. For instance, the Maryland Long Form Financial Statement (State Affidavit) hides juicy information towards the back of the statement. This is where the monthly net income available for support is shown and where discretionary expenses can be controlled, for instance:
- 401K Plan contribution – how can you fund retirement and not be able to pay your mortgage?
- Group term life insurance – in a support situation, this will most likely be needed to protect future payments. Is it the most cost-effective tool at this point? Is the employee over-insured?
- Contributions for stock options or company stock – is this a discretionary expense (investment) at this time?
- Can withholdings that generate a large refund be adjusted so that more cash is available during the year?
Other changes that “go against the grain”
- Taking advantage of IRS regulation 72(T)(c)(2) – should you use retirement funds for something other than retirement? In a perfect world no, but divorce is a major bump in the road for many goals.
- Borrowing or Hardship Withdrawals from your company retirement plan
- Should the “out-spouse” purchase a new house (and get those mortgage deductions) or rent (to give him/her time to consider their new life options)?
- Is a 30-year conventional, fully amortizable mortgage the right refinancing solution?
Sound Divorce Financial Planning requires more than just helping a client finalize his or her divorce settlement. It’s about listening to their concerns and goals, looking past the settlement (what happens after the papers are signed), and using creative strategies that sometimes buck conventional wisdom.
John Faggio is a CPA, CFP®, and a Certified Divorce Financial Analyst™. Faggio Financial provides comprehensive divorce financial analysis and planning, pension valuation, and forensic services.
Email or call John today at 410-988-7333 for an initial, flat-fee consultation or a quote to provide the services that can put you on the right path to a positive outcome in your divorce.